Accounting as a profession and Accounting Information System. Pr. SAMLAL Zoubida, MBA, CFA & PHD candidate for HBS program

Transcription

1 Accounting as a profession and Accounting Information System Pr. SAMLAL Zoubida, MBA, CFA & PHD candidate for HBS program

2 ACCOUNTING INFORMATION

3 CHARACTERISTICS OF ACCOUNTING INFORMATION Accounting information is composed principally of financial data about business transactions, expressed in terms of money. The recorded data must be sorted and summarized before significant reports and analyses can be prepared. The basic raw materials of accounting are composed of business transaction data. Its primary end products are composed of various summaries, analyses, and reports.

4 USERS OF ACCOUNTING INFORMATION Accounting provides the techniques for accumulating and the language for communicating economic data to various categories of individuals and institutions: Investors in a business enterprise need information about its financial status and its future prospects. The government agencies are concerned with the financial activities of business organizations for purposes of taxation and regulation. The individuals most dependent upon and most involved with the end products of accounting are those charged with the responsibility for directing the operations of enterprises.

5 USERS OF ACCOUNTING INFORMATION For example, in the conduct of day-to-day operations, management relies upon accounting to provide the amount owed to each creditor and by each customer and the date each payment is due. The relevant information for one category of users may differ markedly from that needed by other users. Once the user groups are identified, however, and the nature of the relevant data determined, the accountant is able to establish an information network to assist each group in forming judgments and making decisions regarding future actions.

6 ACCOUNTING AS A PROFESSION

7 RELATIONSHIP OF ACCOUNTING TO OTHER FIELDS Everyone engaged in business activities, from the youngest employee to the manager and owner, comes into contact with accounting. The higher the level of authority and responsibility, the greater is the need for an understanding of accounting concepts and terminology. The importance of understanding accounting is not limited to the business world. Many employees with specialized training in non-business areas also make use of accounting data and should understand accounting principles and terminology.

8 PROFESSION OF ACCOUNTANCY Accountancy is a profession with stature comparable to that of engineering or law. The rapid development of accounting theory and technique during the current century has been accompanied by an expansion of the career opportunities in accounting and an increasing number of professionally trained accountants. Accountants who render accounting services on a fee basis, and staff accountants employed by them, are said to be engaged in public accounting. Accountants employed by a particular business enterprise or not-forprofit organization, as chief accountant, controller, or financial vicepresident, are said to be engaged in private accounting.

9 PUBLIC ACCOUNTING The practice of public accounting is generally restricted to licensed CPA s. This act created the Board of Accountancy which was given the power among other, to issue the certificate of Certified Public Accountant, abbreviated as CPA.

10 PRIVATE ACCOUNTING The scope of activities and duties of private accountants varies widely. Private accountants are frequently called management accountants. If they are employed by a manufacturing concern, they may be call industrial or cost accountants. The chief accountant in a business may be call controller. Various governmental units and other not-forprofit organizations also employ accountants. Internal auditors are accountants who review the accounting and operating procedures prescribed by their companies. Accountants who specialize in internal auditing may be granted the Certified Internal Auditor (CIA) certificate.

11 RELATIONSHIP OF ACCOUNTING TO OTHER FIELDS For example, an engineer responsible for selecting the most desirable solution to a technical manufacturing problem may consider cost accounting data to be the decisive factor. Lawyers use accounting data in tax cases and in lawsuits involving property ownership and damages from breach of contract. Governmental agencies rely on accounting data in evaluating the efficiency of government operations and for appraising the feasibility of proposed taxation and spending programs. Accounting plays an important role in modern society and, broadly speaking, all citizens are affected by accounting in some way.

12 FIELDS OF ACCOUNTING

13 SPECIALIZED ACCOUNTING FIELDS FINANCIAL ACCOUNTING It is concerned with the recording of transactions for a business enterprise or other economic unit and the periodic preparation of various reports from such records. Corporate enterprise must employ such principles in preparing their Corporate enterprise must employ such principles in preparing their annual reports on profitability and financial status for their stockholders and the investing public.

14 SPECIALIZED ACCOUNTING FIELDS AUDITING It is a field of activity involving an independent review of the accounting records. In conducting an audit, public accountants examine the records supporting financial reports of an enterprise and express an opinion regarding their fairness and reliability. COST ACCOUNTING It emphasizes the determination and control of costs. It is concerned primarily with the costs of manufacturing processes and of manufactured products, but increasing attention is being given to distribution costs. In addition, one of the principal functions of cost accountants is to assemble and interpret cost data, both actual and prospective for the use of management in controlling current operations and in planning for the future.

15 SPECIALIZED ACCOUNTING FIELD MANAGEMENT ACCOUNTING It employs both historical and estimated data in assisting management in daily operations and in planning future operations. It deals with the specific problems that confront enterprise managers at various organizational levels. The management accountant is frequently concerned with identifying alternative courses of action and in helping to select the best one. TAX ACCOUNTING It encompasses the preparation of tax returns and the consideration of the tax consequences of proposed business transactions or administrative courses of action. Accountants specializing in this field, particularly in the area of tax planning, must be familiar with tax statutes affecting their employer or clients and also must keep up to date on administrative regulations and court decisions on tax cases.

16 SPECIALIZED ACCOUNTING FIELDS ACCOUNTING SYSTEM It is the special field concerned with the design and implementation of procedures for the accumulation and reporting of financial data. The systems accountant must devise appropriate checks and balances to safeguard business assets and provide for information flow that will be efficient and helpful to management. BUDGETARY ACCOUNTING It presents the plan of financial operations for a period and, through records and summaries provides comparisons of actual operations with the predetermined plans. A combination of planning and controlling future operations, it is sometimes concerned to be a part of management accounting.

17 SPECIALIZED ACCOUNTING FIELDS INTERNATIONAL ACCOUNTING It is concerned with the special problems associated with the international trade of multinational business organizations. Accountants specialized in this area must be familiar with the influences of customs law, and taxation of various countries bear on international operations and accounting principles. NOT-FOR-PROFIT ACCOUNTING It specializes in recording and reporting the transactions of various governmental units and other not-for-profit organizations such as church, charities, and educational institutions. An essential element in an accounting system that will insure strict adherence on the part of management to restrictions and other requirements imposed by law, by other institutions, or by individual donors.

18 SPECIALIZED ACCOUNTING FIELDS SOCIAL ACCOUNTING It is the newest field of accounting and is the most difficult to describe concisely. One of the engagement in this field involved measurement of traffic patterns in a densely populated section of the nation as part of a government study to determine the most efficient use of transportation funds, not only in terms of facilitating trade but also of assuring a good environment for the area s residents.

19 BOOKKEEPING AND ACCOUNTING BOOKKEEPING is the recording of business data in a prescribed manner. A bookkeeper may be responsible for keeping all the records of a business or only a minor segment, such portion of customer accounts in department store. Much of the work of the bookkeeper is critical in nature and increasingly being accomplished through the use of mechanical and electronic equipment. ACCOUNTING is primarily concerned with the design of the system of records, the preparation of reports based on the recorded data, and the interpretation of the reports. Accountants often direct and review the work of bookkeeper. In event, the accountant must possess a much higher level of knowledge, conceptual understanding, and analytical skill than is required of the bookkeeper.

20 The Study of Accounting Information Systems

21 WHAT IS A SYSTEM? A System is an entity consisting of interacting parts that are coordinated to achieve one or more common objectives. Systems must possess

22 SYSTEM INPUT PROCESS OUTPUT FEEDBACK

23 INFORMATION SYSTEM DATA INFORMATION INPUT PROCESS OUTPUT FEEDBACK

24 DATA VERSUS INFORMATION Data are raw facts and figures that are processed to produce information Information is data that have been processed and are meaningful and useful to users. The terms meaningful and useful are value-laden terms and usually subsume other qualities such as timeliness, relevance, reliability, consistency, comparability, etc.

25 FUNCTIONAL STEPS IN TRANSFORMING DATA INTO INFORMATION Data collection - capturing, recording, validating and editing data for completeness and accuracy Data Maintenance/Processing - classifying, sorting, calculating data Data Management - storing, maintaining and retrieving data Data Control - safeguarding and securing data and ensuring the accuracy and completeness of the same Information Generation - interpreting, reporting, and communicating information

26 THE UNIVERSAL DATA PROCESSING MODEL Storage Processing Consumers Exchange Events Internal Events Environmental Events }

27 FUNCTIONS OF AN INFORMATION SYSTEM ENVIRONMENT Customers Suppliers INPUT ORGANIZATION INFORMATION SYSTEM PROCESS OUTPUT FEEDBACK Regulatory Stockholders Competitors Agencies

28 AIS AS AN MIS SUBSYSTEM Sales/ Marketing Production Info AIS Personnel Finance

29 RELATIONSHIP OF AIS & MIS MIS Finance Sales/Marketing Production AIS Personnel Order entry/sales Billing/A.Rec.Cash receipts Purchasing/A. Pay./Cash disb. Inventory Payroll General ledger Production

30 EXAMPLES OF AIS SUBSYSTEMS (MERCHANDISING) Order entry Sales System Shipping Inventory System Receiving Purchasing/ A. Payable/ Cash Disb. System Revenue Cycle Billing/ A. Receivable Cash Receipts System General Ledger System Ext/Fin. reporting Tax & req. reporting Internal reporting Expenditure Cycle Human Resource Management (Payroll) System No Planning/Control, Investment, or Production Cycles reflected here

31 OBJECTIVES AND USERS OF AIS Support day-to-day operations Transaction processing Support Internal Decision-Making Trend Analyses Quantitative & Qualitative Data Non-transactional sources Help fulfill Stewardship Role

32 RESOURCES REQUIRED FOR AN AIS Processor(s): Manual or Computerized Data Base(s): Data Repositories Procedures: Manual or Computerized Input / Output Devices Miscellaneous Resources

33 ROLES OF ACCOUNTANTS WITH RESPECT TO AN AIS Financial accountants prepare financial information for external decision-making in accordance with GAAP Managerial accountants prepare financial information Managerial accountants prepare financial information for internal decision-making

34 ROLES OF ACCOUNTANTS WITH RESPECT TO AN AIS Auditors - evaluate controls and attest to the fairness of the financial statements. Accounting managers - control all accounting activities of a firm. Tax specialists - develop information that reflects tax obligations of the firm. Consultants - devise specifications for the AIS.

35 ETHICAL STANDARDS FOR CONSULTING Professional competence Exercise due professional care Plan and supervise all work Obtain relevant data to support reasonable recommendations Maintain integrity and objectivity Understand and respect the responsibilities of all parties Disclose any conflicts of interest

36 CASE STUDY- Price Waterhouse Coopers